IAOP: Creating Sustainable value in Outsourcing Klaus Koefoed April 28 th 2010 Copyright 2009 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.
A few words on Accenture 20 years experience in outsourcing across ITO and BPO Large investments in proprietary enabling solutions, innovation, patents and skills 650+ outsourcing clients 85,000 focused on outsourcing The global scale and scope to respond around the clock 50+ centers worldwide More than 83,000 people working in the Delivery Centers globally A focus on Operational Excellence IAOP s Global Outsourcing 100 List ranks Accenture No. 1 for third consecutive year Copyright 2009 Accenture. All Rights Reserved. 2
5 examples of ensuring value creation in outsourcing Seven (+1) rules Keep strategic objectives in mind, throughout the journey Bundling of services Application Outsourcing example Finance & Accounting example Copyright 2009 Accenture. All Rights Reserved. 3
Seven (plus 1) Rules to Outsourcing Success Accenture research has defined seven key success factors in outsourcing relationships:- Build in Broad Business Outcomes Early and Often Hire a Partner, Not Just a Provider It s More Than a Contract, it s a Business Relationship Leverage Gain-Sharing Use Active Governance Assign a Dedicated Executive Focus Relentlessly on Primary Objectives Innovation Copyright 2009 Accenture. All Rights Reserved. 4
Ensure the KPI s and commercial model reflect the overall objectives To ensure that incentives are linked to strategic objectives, we recommend structuring outsourcing deals around outcomes. Strategic Objectives Business Objectives Business Requirements Service Definition Key Performance Indicators Incentive Program Link Rewards Directly to Business Outcomes Drive Right Behaviors Ensure Common Goals Build Flexibility Ensure Responsiveness Examples of KPI s: Cost savings Reduced time to market Productivity Indirect Procurement example Innovation example Copyright 2009 Accenture. All Rights Reserved. 5
Outcome focused deals facilitate value drivers being linked to business objectives Value Drivers Productivity/ Efficiency Improvements Business Objectives Increase Direct Project Hours Reduce idle time and time spent on unapproved efforts Potential Metrics Hours spent resolving trouble tickets or rework Hours spent on maintenance activities Hours spent on approved projects % of projects with on-time/on-budget % downtime waiting for work prioritization, approved design specs, business requirements Increase Task Efficiency Reduced effort per unit of output Average time and duration to close trouble tickets Time spent by SDLC phase per work type (trouble ticket, ad-hoc change, enhancement, large project) Offshore Cost Leverage Easier to Maintain Arch/ Application Optimization Reduce Non-Value Efforts Reduce hours wasted on cancelled, delayed, or starting and stopping projects Lower Cost per FTE Reduce development costs by effectively using a leveraged team Easier to Maintain Applications % time spent on re-prioritized, delayed, or canceled projects Percent of development time spent on projects aligned with top three business objectives Percent of design docs, functional requirements, and tech requirements signed-off on time Managed resource turnover percentage Percent of organization sourced by workforce type Organizational leadership / span of control Application development costs Application management costs Application testing costs Percent functional redundancy across applications Number of interfaces / dependencies Copyright 2009 Accenture. All Rights Reserved.
Bundling BPO and ITO drives additional benefits Reduce redundancies and costs: Operating multiple processes from a single platform and single provider drives greater efficiency. Simplify the governance process: Investing in a relationship with a single service provider simplifies management of the outsourcing arrangement. Reduce operating risk: Bundling with a single provider greatly reduces these potential points of failure. Less risk of things falling between chairs and fingerpointing Mitigate delivery risk: Lower risk and increase comfort with one point of contact for bundled outsourcing services. Standardize and simplify operations: Clients benefit from the consistent approach to business processes, methods and terminology that bundled outsourcing provides. Copyright 2009 Accenture. All Rights Reserved. 7
Example: A value-driven approach to Application Outsourcing Value Enable Business Performance Optimize Application Portfolio Industrialize Delivery Labor Arbitrage Time Additional 20-30% in process savings Additional 10-20% reduction in total cost of ownership Rationalize technologies, hardware and software Align service levels/spending with business priorities Increase productivity by 25-30% Reduce labor cost 25% Copyright 2009 Accenture. All Rights Reserved. 8
Gain Share example agree relevant focus areas agree relevant, few, manageable KPI s agree performance and payment model* *Part of fees related to the model Productivity (20 points) KPI 1 KPI 2 Client satisfaction (15 points) Quality & service (40 points) KPI 1 KPI 2 Innovation (25 points) KPI 1 KPI 2 KPI 1 KPI 2 Performance Accenture score % change to target fee Above target >95 points +X% >85 points +Y% Target 75 points 0 >65 points -Q% Below target >55 points -Z% Copyright 2009 Accenture. All Rights Reserved. 9
Finance &Accounting BPO Example Key drivers Reducing Costs Improving Service Quality & Customer Service Improving Controls Better Supporting / Enabling Business Strategy How realized through BPO? Consolidation benefits Economies of scale: labour, management, infrastructure & technology Rightsizing, organization and management de-layering Scale benefits from service provider s ongoing investments in infrastructure, technology, organization and best practices shared across a portfolio of clients Efficiency improvement through standardization, re-engineering, automation Lower cost locations: Reduced labour and infrastructure costs Clearly defined service expectations (service level agreements) Granular performance and cost visibility (KPIs and performance reporting) Development of powerful service culture & systematic customer relationship mgmt Move from fragmented operations to a consolidated set-up enables implementation of a consistent, standardised controls environment Focus on process documentation and controls Change at speed, through established infrastructure and change capability Focus retained finance on decision support / high value-added activities Enable transformation to a standard process/system business architecture Enable transformation from country based to regional or product business model Move from fixed cost structure to variable cost structure Improved consistency & transparency of management information Establishment of partnership with access to wider expertise and further services Copyright 2009 Accenture. All Rights Reserved. 10
Creating Sustainable Value in Complex Outsourcing IAOP Nordic Chapter 28 April 2010 Gorrissen Federspiel
Fashion changes but outsourcing is like running a business Successful outsourcing depends upon many different skills and levers: Governance, customer skills and contract management Partnership Service requirements and service levels The right contract The right sourcing model for the job, such as multisourcing Maintaining competition The reality is that requirements and dependencies change from time to time and that no universal advice or model applies to complex outsourcing Gorrissen Federspiel
What is sustainable value? The customer perception that value for money is delivered by the supplier That underlying customer business reasons for outsourcing are supported That underlying customer business interests are supported throughout the duration of the outsourcing relationship Gorrissen Federspiel
Why value for money is not delivered Contracts set detailed requirements as to how and what is delivered Contracts do not address whether the deliverables fulfill the intended reasons for outsourcing or customer business interests Contracts primarily address short term goals such as immediate savings and balance sheet adjustments Most often customers have no idea what will create value on a long term basis Gorrissen Federspiel
Contracting for sustainable value requires a deliberate approach Customer and supplier interests need to be aligned that requires: Transparent pricing model Pricing units with a direct relation to supplier cost drivers Utility based pricing and not capacity based pricing Identification of the key customer value drivers Identification of value drivers in the contractual framework and detailed drafting on which contractual levers will support the achievement of the chosen value drivers Gorrissen Federspiel
Key value drivers Effective RFS process Real ability to conduct demand management Decreasing operational costs in line with decreasing technology costs and efficiency savings obtained over time Proactive approach to risk and incident resolution No fuss approach to incident and problem management Commercial reasonability Gorrissen Federspiel
Competition It Works!
Contracting Capability Speed Quality Integrity
Contract Mechanisms Proactive Remedies Practical Benchmarking VAL
Contract Mechanisms (planned) E-auctions Resource Specification Lead Times
Contact Information Martin A. Clausen General Counsel - Maersk Line martin.a.clausen@maersk.com